Real Estate Markets: Understanding The Sectors

This week while exploring the blogosphere, I decided to look into the beliefs of one of the most famous real estate developers ever, Donald Trump (pictured to the right). Additionally, I decided to look at the Manhattan real estate market and how it is doing during this sluggish time. There are few people that have been able to achieve what Trump has on such a large scale, which is very intriguing to me. While searching through many very interesting posts, I came across two that drew my attention because of their approach despite the current market situation. As many people know their has been some debate on the stability of real estate markets in the United States right now due to the current situation involving the market and the rates. So the first post "Resort/Second Home Sales Should Prosper in Current Real Estate Markets," was published by the Trump University Blog, written by Brett Carmen who is a veteran in the real estate industry. His post talks about the movement of people that have money who will move away from renting and into buying in certain sectors because of how the market is situated. The second post "Manhattan Apartment Prices rise in 1-Q-2008," was published by Mitchell Hall who is a successful New York Realtor. His post talks about how despite the sluggish market, prices in Manhattan are still increasing. In the first post I will address the issue involving certain sectors that will thrive during this time of slowing markets. In the second post I will interpret the ever increasing prices in New York for housing. Both are interesting situations and I have left my comments on each of these blogs below, as well as on the individual's blogs.

"Resort/Second Home Sales Should Prosper in Current Real Estate Markets"
Comment:
First off I would like to thank you for your interesting post on the potential of certain real estate sectors being able to thrive during this pronounced recession by the Feds. As you stated "the demand for goods and services is still high and the wealthy still have plenty of money to spend on discretionary purchases," I completely agree with this assessment. As a potential investor it is not hard to understand that the markets will turn around eventually, it is just a matter of waiting it out. If you have the money as you suggested it is a great time to buy these extra homes or resort condos while the prices are down and the builders or sellers are desperate to unload the properties. Like you said it is obvious that this is the time that casual renters will begin to move away from renting and will lean towards purchasing these properties for personal use or even just an investment. Another great point you made was the foreign investment into these resorts is definitely apparent as we continue to see more and more foreigners coming over to United States for investment opportunities as well as getaways with the value of the dollar falling. One place that this is very much apparent is Las Vegas, every time I go there I feel like a foreigner with 20 different languages being spoken at all times. Do you think that there is going to be more foreign bought properties and condo's than American Investors? Also how long do you feel it will take the housing market to rebound and what effect will that have on the resort and second home sector? Personally, I feel that this is a great time to jump on this sector of real estate if you have the money and the opportunity, and you will not regret it as the market regains property values. Thank you again for your insightful post and it will be interesting to see how this real estate sector plays out.

"Manhattan Apartment Prices rise in 1-Q-2008"
Comment:
I would like to first thank you for your intriguing post on how the prices of condos and apartments continue to increase even with the slowing market in Manhattan (aerial view of Manhattan below). This is a very interesting post, because with the current slumping market situation it is fascinating to hear that the average price of an apartment increased 33.5% compared to the same quarter last year. That seems outrageous with what is happening with the market right now that the average price would be $1,700,000 for an apartment in Manhattan. It is obvious as you state that "prices are up sales are slowing and inventory is rising". How do they expect to get people to pay these increases in prices when people can see all the units are not selling? It is interesting that you mentioned the interest from foreign buyers with the fallout taking place on Wall Street, it seems like foreigners are taking advantage of our market with the falling dollar and the market situation. Is it a good thing if citizens are not able to buy the apartments and condos and it's all being bought up by foreigners? Another significant move was the 86% increase of a 4 bedroom plus co-op that rose from around $6,900,000 last year to $12,900,000 this year. That certainly is a major increase even for wealthy, but how do you expect to attract New York buyers with that type of an increase in this recessionary market? Even the median price of a one bedroom apartment rose 12% from $699,000 to $750,000 this year. Truly I do not think this is the best move for the New York property owners to make if they want to generate buyers within the city. Yes, they will still get the foreign investment but I do not know if that is enough to over come the ever increasing build up of unsold units. Thank you for your interesting post again and I guess time will only tell as to the outcome of the current market.

Redesigning Mexico: Bringing the Living Standard Up

For the last ten years I went to Mexico at least once a year and throughout these travels I have seen the need for some redevelopment within the country. Even in the nicer districts, one cannot help but notice how run down certain areas are and how families live in poverty and do not have decent hospitals or schools. There is a company called GEO, the number two home developer in Mexico that has decided to try and tackle this problem. GEO has teamed up with the Mexican government to take empty fields in six different locations within the country and transform them into full thriving cities. GEO's founder, Luis Orvananos (pictured right), has traditionally focused on building neighborhoods on land just outside of the cities in Mexico. This plan is not working anymore because they try to build affordable housing and since land prices are going up they are not able to build these homes at such a price anymore. This has led to the need for a new direction of development, which has come to light with the vision of Orvananos. These new cities that they are attempting to build would include a minimum of 100,000 new homes, industrial parks, retail districts with brand new malls, new schools, new hospitals and the other essentials of a full fledged city. One of the areas that they have already started to build in is a small town called Zumpango, which has a current population around 127,988 and within eight years it is expected to exceed 600,000. While they build these huge mega projects, they do stand to make a lot of money, but they have pledged to continue selling these new homes at a price of less than $40,000 each. Considering the average income in Mexico is around $7,000 a year, this would be a tremendous effort to put people into homes and create a place for them to attain jobs or find better paying ones.

As Orvananos said, "This will be the launch of a new side of GEO," and as one would believe there is a lot of risk in making a large move of this size. Considering until now, the fact that big projects they have done in the past and ones that they currently are working on have only amounted to about 15% of their companies capacity. Now that these developments are taking over the majority of their time and business, Orvananos feels very confident that they should be a success, which he addressed in a press conference "With the infrastructure being put in by the government and us, plus the alliance between the industrial, commercial and housing segments, we've got potential to make the business successful". With everything going as planned and having the necessary backers for this project, the revenues for GEO are projected to be over $420 million in the fourth quarter. This would allow GEO to expand by about 14% this year and 20% annually after that, which would give them the ability to reach out to more areas in which to build and expand the development in Mexico. As a whole this project could help jump start a prolonged shortage of housing for Mexican citizens, while being very profitable from a developer's point of view.

Upon graduation I want to be a developer and from that stand point this is an amazing project if they can pull it off completely. Considering the shortage of homes in the country of Mexico and the current amount of poverty that surrounds it citizens, this could possibly begin a turn around for the country. As a developer it stands to potentially make a lot of money, as well as do something very important for the economy. These are projects that I like to see, because they give back to a country and not just continue to cater to the needs of the rich. Considering Mexico has a population of just over 103 million people, it is terrible to consider the number of people living in poverty (picture to the right is the type of homes most citizens live in). It is estimated that 14% to 35% of people depending on whether they are in cities or rural areas live below the poverty line. In addition to this it is estimated that around 12% of the population lives on less than $2 dollars a day. Think about the potential that these six mega projects could bring about and if they flourish what would stop GEO and other developers from starting more of these cities. To take land that has nothing on it and create brand new cities with amenities that some Mexican citizens have never seen is something that could help change the whole dynamic of Mexico and help reduce the poverty tremendously. As Orvananos put it "They'll have education, recreation, hospitals, shopping and jobs"; what more can the people ask for?